The Determinants of Deposit Insurance Coverage: Evidence from 74 Countries

Abstract

Using data from 74 countries between the years of 1960 to 2008, we performed panel regressions and logit models on political settings and the economic situation to identify which factors influence deposit insurance coverage and the probability of changes in coverage. Results reveal that countries with higher coverage are those with less political openness, lower interest rate spreads and deposit interest rates; conversely, we find that coverage tends to be higher in countries with greater levels of government debt. Considering the time-invariant country heterogeneity, countries with lower interest rate spreads are likely to increase the coverage and the probability of changes in coverage. The results could provide reference points for policymakers in considering the setting of deposit insurance schemes, with the aim of ensuring financial stability.